Making Cremation Profitable

December 13, 2012
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Article originally published in the Memorial Business Journal

New strategies must be employed to build trust, client satisfaction in order to grow market share

Charlotte, North Carolina – With cremation making up the majority of business at more funeral homes, new strategies must be employed to understand the cremation family as well as build trust and client satisfaction to grow market share.

Bill McQueen, a former second-generation family funeral home owner, offered his experience and perspective to attendees during the “Making Cremation Profitable” workshop at the National Funeral Directors Association’s International Convention & Expo.

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Prior to becoming a licensed funeral director and embalmer, he worked as a CPA and attorney. He was president of Anderson-McQueen Funeral Homes for 16 years, leading the firm through a period where a lot of changes were taking place, especially the dramatic increase in cremation, particularly in the St. Petersburg market.

McQueen has left the active practice of funeral directing and now works as a principal consultant with the firm Graystone & Associates.

McQueen, former president of the Cremation Association of North America, framed his presentation with the statistical proof that, it is hoped, everyone already realizes. The statistics chart a dramatic increase in the national cremation rate – from 14.5 percent in 1985 to the anticipated 46 percent in 2015. Back in the late 1980s and early ’90s, McQueen noted, it was obvious that cremation was something that was much more prevalent in marketplaces such as Florida and on the West Coast, but today, he said, it pretty much runs across the whole United States.

“There should be no one sitting here today thinking that cremation is just a fad or that it won’t affect their marketplace,” McQueen said. “It is very clear that cremation is going to be the means of disposition of choice for consumers throughout the country.”

The point of McQueen’s presentation was to determine whether funeral directors can be comfortable offering cremation to families.

When McQueen’s father started the funeral business in St. Petersburg in 1952, the area was considered a traditional funeral home marketplace. The cremation rate at the time was in single digits. “St. Petersburg, more so than the rest of Florida, built its whole population on tourism and retirement.”

It was a nice place to build a funeral business, McQueen said, but at the same time, the business undertook tremendous change from a cremation standpoint. In the early 1980s, around the time McQueen was finishing up college, the cremation rate in the area was about 12 percent, compared to more than 70 percent today.

He recalled back in the 1990s when the firm’s cremation rate was topping 30 percent and it started to have a real financial impact on the business. “I thought for sure that cremation would top out at about 50 percent,” he acknowledged. “But to see a 600 percent increase in your cremation rate in a 25-year period is like the story of putting the frog in a pan. Fortunately for us, we did experience a tremendous growth in cremation, which is like turning the heat up very high on that pan really fast – you take notice. So you either hop out or you don’t survive.”
However, using the same analogy, there are some areas where the heat turned up slowly year after year and perhaps not
fast enough to even notice until it was too late.

There are two main things from McQueen’s standpoint that go in to making cremation profitable. One, the firm has to get more customers and grow market share. “If you are not growing your cremation market share, your business is backing up and you are not going to be able to be profitable, five, 10 or 15 years down the line.”

Secondly, firms are going to have to spend as much time as necessary to increase the service offerings whenever possible.

McQueen said he’s a big believer in the theory of value migration. Consumers of the last century up until the 1980s could be defined on a value spectrum – it pretty much formed a nice bell curve, which shows that the majority of people were satisfied with an average product or service. Of course, there are those who are mainly concerned about price, just as there are those who are not concerned at price but are looking for something that is customized.

McQueen pointed out that what we have seen in the last 25 to 30 years is a migration up and down that value spectrum.
“Today, you have the shift in which there are many more people that whatever they are looking at, they are concerned primarily about price and will go wherever they can to pay the least amount. This group is the price seekers.

There’s also a group that has dramatically moved up in the value spectrum, those who, for that product or service, are much more concerned about personalization or customization to get exactly what they want. They don’t want to overpay, but price no longer becomes an issue.

The No Profit Zone

Where you don’t want to be is in the middle of the two groups, referred to as “the no profit zone,” where you try to be all things to all people. The winners over the last 20 years in the retail industry have been those who have picked their battles – they went to the price-seeking end of the marketplace, such as the Walmarts, or they went after that solutionseeking brand, where they were somehow able to differentiate themselves and get a price premium for it, such as the RitzCarlton hotel chains.

The losers in this model are those firms that tried to be all things to all people, such as the department stores like Sears and Macy’s. “They have a relatively high cost structure and don’t have as many unique offerings or focus,” said McQueen.

If you believe in the value migration concept, then you have to come up with a business model to address it. McQueen called the model used the “profit pyramid,” which he said is when don’t look at your business as just one single service offering or product. instead, you look at it as a profit pyramid, where you have different levels of products and services that you offer to the consuming public.

“When you have a profit pyramid, the top of your pyramid is probably going to do a lot less volume than what is at the bottom of the pyramid, but [from the top] is where the bulk of your profits are going to come. That is where your highest profit margins are,” said McQueen.

The bottom of the pyramid, called the firewall brand, serves a very important function in this model. “It addresses the price seekers in your individual community,” he explained. “The firewall brand would be successful even if you are not making money at it, if you are just breaking even, if it is achieving its goal of keeping other price seekers out of your market place. When a new competitor comes to town, it usually competes on price.”

In addition to controlling this end of the marketplace to make it more difficult for new competitors to enter the marketplace, a firewall brand will make it more difficult for those already in the marketplace to survive. “To compete at that end of the marketplace, you have to have volume,” McQueen said. If you don’t have volume, you are not going to make it.”

McQueen said that when the cremation rate in his service area started to top the 30 percent mark, they initially thought the way to combat the situation was price. “We lowered our price offering,” he said. “It wasn’t the lowest in the marketplace, but it was pretty darn low.”

The lesson learned was that every dollar that came off the top came off the bottom line as well. “We thought we were going to pick up the volume to make up for it,” he conceded. “What we learned was that those people in the market who are true price seekers will continue to go down the street, even if it’s a $100 difference.”
So what to do? McQueen funeral homes had always viewed its family funeral home brand as a premium brand, so McQueen decided to build a family Cremation Tribute Center based on what the firm has seen in other countries around the world in which cremation made up the bulk of the business. The facility opened in 1997, allowing families to participate in the cremation process and even initiate the cremation if they chose to.

“One of the biggest things it did was allow our funeral directors to really get their hands around the fact that we are really the best in the market and have something to offer that isn’t being offered down the street,” McQueen said. The end result was that McQueen ended up raising its cremation pricing, which was directly contrary to its first attempted strategy.

Looking at pricing, McQueen said is confounded by some firms that have a nondeclinable fee of $2,000 and yet offer direct cremation for $1,000. “If it costs you $2,000 to turn the key whenever you get a call, then why are you giving that business away for $1,000?” he asked. “I would strongly encourage you to look at how much it costs to operate your business and then price accordingly and appropriately rather than let your competitor down the street set your prices for you.”

On the topic of innovation, McQueen recalled listening to a presentation by Dr. Clay Christensen of Harvard Business School. “He told us that when it comes to innovation, there are two types,” McQueen said.

The first is sustaining innovation, which is taking a product or service and improving upon it in the way people are used to dealing with it. Another type is called disruptive innovation. “Even successful companies have a hard time dealing with disruptive innovation,” McQueen explained. “Oftentimes, at least initially, the changes that the disruptive innovator is making to the marketplace might be viewed as a lesser product or service.” He used the example of Southwest Airlines, which didn’t offer pre-assigned seating and had limited routes. The other airlines presupposed that the customer would not buy into this model. But after years and years of the airline industry losing money, it was Southwest that was the consistent winner.

If you are in a marketplace where there is a lot of potential volume and the cremation rate is rising, taking a disruptive innovation track might work. McQueen said that is what his family firm did, albeit with much hesitancy, in the late 1990s when it launched a separate brand.

“We opened it in a professional strip center,” McQueen said. “One side was an oncologist’s office and the other side was a hospice intake office.” He said he was concerned about cannibalization of their market on the interest in the McQueen brand, but with all the changes happening in the marketplace, that was the way to go.

“Our cremation tribute center was doing a good job, but there were a lot of cremation customers we were not satisfying,” McQueen said. “We had excess capacity in our cremation facilities, so we decided to go after that price-seeking end of the market.”

McQueen operated that facility from 9 a.m.-5 p.m. Monday through Friday. “People who are true price seekers are willing to sacrifice some things for a low price,” he said. “One of them is immediacy. In the first five years we operated that facility, we kept close track of every call we handled, and at the most, we lost maybe five calls because we were not able to meet with the family over the weekend.”

McQueen emphasized that if you are going to offer an alternative, lower-priced brand, you need to really look at the structure of your business and put in place some things that are not negotiable that go against what you would normally do.

The alternative brand started off slow for McQueen and then started to pick up traction. “After about two and a half years, we were up to a little less than 200 calls, and then it just took and through one location, we were doing 1,200 funerals a year, most of which were what we referred to direct cremations,” he said. “It is a whole different mind set and a different structure if you are going to create a separate brand.”

So, if the plan is to create a breakthrough business within an established organization, McQueen cited a Harvard Business Review article that says you must forget some of what made the established business successful. McQueen said at his alternative business, the location was not open on weekends because it would not have made fiscal sense at the time to take staff from the flagship on weekends for the lower-revenue business.

The article also said that you need to borrow from the established business only those resources that offer a distinct, competitive advantage. For McQueen, it was the cremation operation.

The Harvard Business Review article also said that you must learn quickly to resolve the inevitable unknowns that accompany any new business. McQueen said that he and his brother had regular meetings with the staff of the alternative business to find out what was and wasn’t working in the location and how were consumers responding.

Solution Seeking

Drawing from his experience, McQueen said he needed to grow the customer base and that involved figuring out where to spend the dollars, time and abilities. McQueen said that oftentimes, the funeral home spends all of its focus on the funeral host, the immediate family whose loved one has died. McQueen said it was something Doug Gober, now a senior loan officer with Live Oak Bank, said that changed his perspective. According to McQueen, Gober said that the funeral home needs to put more time and effort into the funeral guests than to the funeral hosts and then to the community at large.

“If you think about it in the funeral industry, all of this money that we spend in community-wide advertising and marketing, most people don’t want to hear that message or have that brought up until the time arises,” McQueen said. “The funeral hosts have already selected us, and if we are doing a good job and satisfying their needs, hopefully they will become a loyal advocate and will talk for us. But during the service, they are still a little numb or confused or angry and may not pick up on some of the things we are even doing to bring value to the equation for them.

“But the people who are really tuned in are the funeral guests,” he continued. “They are the ones whom the death has affected because they are somehow part of the circle of friends, but they are not so numb or devastated by the death and thus are tuned in to what is going on. When they come to your facilities and they see how you handle ceremonies and they see what other kinds of offerings you have, they are picking up on these things, and that is where other opportunities lie to build other advocates and build future business.”

Taking another cue from Mark Sanborn, who wrote a book called The Fred Factor, McQueen shared with attendees some points he gleaned from the book. “People will pay good money if you treat them like a ‘friend,’ so you build a level of trust with them and you solve their problems for them.”

What that means is building customer satisfaction. In Satisfaction, a book by Chris Denove and James D. Power IV, the authors wrote, “Before a company can use customer satisfaction as a tool to drive profitability, it must understand what customer satisfaction is and isn’t. Customer satisfaction is not a goal in itself, for customer satisfaction is only important because it drives buyer behavior.”

McQueen cited five points showing how customer satisfaction drives profitability. The first is the loyalty factor. “Our research shows that families are not as loyal to their funeral home providers as they had been in the past,” he said. In past generations, people came to the same funeral home because that is where previous family members were served. But today, the baby boomers on down are more willing to search for a funeral home to meet their needs and break with tradition.

“So if you build customer loyalty, you are going to create advocates out there who are going to talk about you with other members of the community and draw more business to you,” McQueen said.

He added it’s hard to beat word-of-mouth advertising. Satisfied customers not only solicit others to do business with a particular firm, but their opinions carry weight – more than all of the company’s advertising combined, McQueen said.

Consumers also tend to pay a premium to do business with companies that have a reputation for high quality and great customer service, he added. Further, high-satisfaction companies seem to have lower operating costs, and firms that garner high customer satisfaction during the sales experience make a sale to a higher percentage of shoppers, according to McQueen.

“If you break down the consumer experience, there are three main individual touchpoints,” McQueen said. “Ambiance of the physical facility, interpersonal experience and company policies – all of these go into defining what customer satisfaction is.”

Historically, a funeral director’s job was 80 percent logistics and 20 percent grief support. The family and friends would benefit from the grief support. Unfortunately, today, the cremation rate is high and families are electing not to have that guest of honor present. “What we have to do is flip that and play up our central role in regard to grief support and education,” he said.

For the funeral home, profitability begins with capturing the cremation customer. “There are people we refer to at Graystone as cremation researchers, and these people are not just calling you on the phone, they are looking on your website and gathering information from other people’s websites to make a decision on who they want to go to.”

McQueen cited Graystone research that found that more than 85 percent of calls to funeral homes are research calls for cremation. “I can’t even remember the last time someone called in and asked about burial prices,” he said. “People are always calling in about cremation. Usually the first words out of their mouths are, ‘What are your prices for cremation.’”

Even consumers who are solution seekers ask about price because they don’t know what else to ask about or have a reference point about what one funeral home offers compared with another. “I strongly encourage you to work with your staff to develop some kind of script on how you are going to deal with this,” McQueen said. “Our goal is to grow market share and get more customers, but if you can’t even get them in the door, you are going to be in trouble.”
McQueen then clarified his use of the term “script.” He said he did not mean that staff should be reading off a page but that there should be an outline of the 10, 12 or 15 things they need to touch on, or try to touch on, while they are dealing with someone who is calling for information. “You need to practice it and sit down with your people, which we did, and go through mock telephone calls,” McQueen said. “I’ll tell you right now that your staff won’t like it and you may not like it, but as we continued to tell our staff, it is much better to practice those types of things and get comfortable with them so the words trip off your tongue when you get asked questions like, ‘Why are you twice as expensive as the other funeral home down the street?’ or whatever the question might be so you don’t have that deer-in-the-headlights look when the question comes up.”

Experience has demonstrated that the person who can keep the person on the phone the longest is usually the one who ends up winning and gets the call.

He also recommended that firms engage in mystery shopping. “People do what you inspect, not what you expect,” said McQueen. “You might even find that certain members of your staff are better than others with these calls.”

One of the keys with this exercise is training the employee to be able to get through the whole script and communicate your firm’s story to the caller. McQueen said that no matter what a funeral home does, it will not get 100 percent of the price shoppers, but every week or so, he said his firm would get a call from someone who’d say, “We know you’re not the cheapest in town but you provided us with a lot of information and you seemed very caring so we want you to help us take care of our mother or grandmother’s cremation.”

Internet’s Impact

McQueen also urged attendees to look at their funeral home’s website and its impact on educating consumers. There are many consumers, he said, who do not call and instead just surf the websites to gather information. “I strongly encourage you to look at your website and make sure you are providing information on the site that is valuable to them, that will help them make decisions and understand who you are as a provider,” McQueen said.

McQueen posed a question to the audience. He asked, would you rather make an arrangement with just one person across the table or would you rather make it with a room filled with 12 different family members? McQueen himself used to think it would be easier to work with one family member. However, he now believes that, especially with cremation families, it is important to involve as many family members as possible.

“If you look at the dynamics of a given family, family members play different roles, such as planner, feeler, catalyst and protector,” he said.

The planner is the one with all of the lists. He or she knows who all the family members are, when everyone’s birthday is, favorite colors, etc. The feeler is the emotional one, the catalyst will challenge everything that might be considered outside of the box, and the protector is the one that guards the checkbook.

If you had a choice to meet with only one member? That would probably be the planner. “That is the person who is going to see the value of the ceremony and know all the other family members out there and spread the word and get in touch with them,” he said.

At the center of the customer satisfaction equation is the arrangement process. “You can’t underestimate the amount of effort and training you have to put into the arrangement process with your staff,” McQueen said, noting that standard procedure for an arranger that is scheduled to meet with a family is to be at the front door at least 15 minutes ahead of time.

McQueen said he has heard of funeral homes that make arrangements with a family and then offer a tour of the facility. In a high-cremation area, he suggests offering the tour ahead of time. “We don’t tell people when they walk in the front door that we are going to take you on a tour of the funeral home,” McQueen said. “We would just tell people to follow us this way and we would take them on a route past the coffee lounge, where we would offer them coffee and explain how people have gatherings here. Then we’d take them next door to one of the ceremony rooms we have, and we have the video monitors playing a life video tribute.

“What we are doing is helping this family paint a picture in their mind of if they did decide to have a ceremony, this is what it would look like,” McQueen said. “We would take them to our reception center and our kids room before we took them to our planning suite.”

McQueen also suggested that if the funeral home is equipped with the large video monitors, don’t turn them off but rather continuously show a life video tribute.

Then comes time for the arrangement process and collecting that life story. A lot of people have their way of doing the arrangement conference, but McQueen said to remember the 80-20 rule – 80 percent grief support and 20 percent logistics. You don’t want to pick up your pencil and start taking vital statistics right away, you want to talk about the life of the individual who has died.

McQueen said the opening remark could be as simple as, “I have found that it helps me get to know the person for whom I am making arrangements. Would you mind sharing some things about your [loved one]?”

From a psychological standpoint, McQueen said, you are helping the families unload their emotional baggage. Emotionally, the family is experiencing all sorts of things, and if the funeral director tries then to start educating the family on the value of a ceremony and what can done to help them, you may not be able to reach them because for them the emotional glass is full. But if you let them talk, it is like tipping that glass over a little, which will then allow the funeral director some room to help educate them. It also lets the funeral director understand about the individual and the family members, which will trigger things in the funeral director’s mind that could be introduced from a ceremony standpoint.

“If I can build that level of trust with the family, treat them like a friend, now I can help them deal with the loss they just had by having them participate in some sort of a ceremony event or gathering,” McQueen said.

Research has demonstrated that families are receptive to packages for the simple reason that consumers are exposed to packages in many areas, whether they are buying a computer bundled with software, fast food (your basic Happy Meal) or trips that include transportation and lodging. For consumers, packages are simple, convenient and offer perceived value.

McQueen also touched on some Graystone research that suggests that not all “no funeral” families are “direct cremation price seekers.” Survey data between 2007 and 2011 found that 38 percent of cremation society families have a church service after the cremation. “These ‘no funeral’ families are not direct cremation-only families,” he said. “They are having some sort of an event, but for whatever reason, they don’t think the funeral provider is relevant enough to be involved in the event or to bring value to the table.”

What Graystone came up with is that there are three subsets of the “no-funeral, price-seeking segment.” There are the true “no-funeral families” that are having a direct cremation with no service or ceremony. A big part is what he called the self-serve families that go to the funeral home to handle the cremation but are going to have a ceremony on their own. There is also the third-party provider, such as a church or hospice.

Looking ahead 10 years, Graystone research suggests that a big part of the funeral market will be limited- or no-service offerings. One of the big reasons for this is that hospice recommends a cremation society almost three times more often than a funeral home.

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